Woodchopper wrote: Wed Jun 19, 2024 7:44 am
But if the economy continues to stagnate every spending decision will be a trade-off. Increase spending here and they have to decrease it there. This is a completely different context to what British people have been used to for most of the past 200 years or so. This doesn’t mean that there can’t be any spending and investment, both Japan and Italy have excellent railways. But the decisions are much more complicated.
Stagnation isn’t inevitable of course. Growth could start ticking over again.
There's an old saying among economists, “throughout history there have been only four kinds of economies in the world: advanced, developing, Japan, and Argentina.” The point being that Japan and Argentina reached high among the wealthy, and then stagnated for reasons that are bit tricky to elucidate. And Italy joined the club of late, and maybe we can soon say that Britain joined it too. Other countries in the world stagnated, like Greece and Venezuela, but for much clearer reasons.
I say tricky to elucidate, because it isn't a question of restore standard responsible macroeconomic policies and everything will be lovely. Reasonably responsible macro policies operate, by the standards of their peers who are never entirely responsible themselves, and still they stagnate. So it must be that there are more ingrained issues in these countries - including Britain - that impede growth. In Britain, productivity has been stagnant, while continuing to improve in our nearby peers. Ultimately, productivity is what designates where, approximately, you will sit in the ranks of the well-off. And it just is far from obvious what is the key factor that is different which has got us stuck there.
Japan and Italy have good railways, because they can build and run railways at a sensible cost. Japan's railways are mostly financed by property income on the large property portfolios the railways hold, which in Britain was sold off. Argentina's railways are a crumbling mess, because there has been so little money at all for maintenance or investment, as Hiroshima-scale financial crises meant that every spare peso was needed for income support for the poor. But in Britain, where it costs three times as much to build or maintain a railway as in Italy, there's actually been plenty of money available to the railway, by the standards of our peers, but we are unable to make that money go as far.
One issue that has been repeatedly identified as holding Britain back is the condition of our finance markets. Britain, with its large financial markets, ought to be a great place to finance new businesses. And with our strong academic sector, there are lots of ideas. But the reverse is true. Whilst in California the financiers fall over themselves to get into innovative new businesses - making things perhaps a bit too easy for scams like Theranos - in Britain it is very difficult to get finance for the kind of thing that makes Silicon Valley so lively and world-leading. It would seem that the City has too many easy options to make money without taking those kinds of risks. The City has had it too easy in Britain, because the politicians are falling over themselves to keep in with them, as it is the source of juicy political donations. Why finance risky new enterprises, when there is so much to be made from laundering kleptocrats' ill-gotten gains? That remains a large part of the business of the City and its little helpers in the form of satellite off-shore jurisdictions.
Another issue repeatedly identified is that expenditure on R&D in Britain, as a percent of GDP, is much lower than in our peers. Some of that R&D happens in commercial companies, and would be financed as in the previous paragraph. So that's one hold-up. Another is the ungenerosity of the state in that area.
My suspicion is that on top of that there are a lot of little things, which collectively weigh down productivity and economic activity. Although we don't suffer the costs of crime and corruption to the extent of Italy and Argentina, we seem to have gained a warped set of priorities which make everything a lot harder than it ought to be. And a lot of people have an interest in the perpetuation of these systems, so it is very hard to break them down and simplify them.
Unfortunately in conducting bonfires of the regulations, the Conservatives have done it in axe-grinding ways, burning visible and useful things, mainly with the aim of giving their friends in the city an easy ride. It is actually important that tall buildings shouldn't be clad with combustible cladding. They have had no interest at all in searching through the cupboards and finding the lots of little things, each with its small band of defenders, that would actually make productive business and everyday conduct of public services much easier.
